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Agricultural Finance for Smallholder Farmers: Rethinking Traditional Microfinance Risk and Cost Management Approaches

by Daniela Rottger Ibidem Press
Pub Date:
Pbk 152 pages
AU$54.99 NZ$58.25
Product Status: In Stock Now
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Even though traditional microfinance has successfully paved the way for offering financial services to low-income populations without traditional collateral, many microfinance institutions (MFIs) are still reluctant to move into rural areas and agricultural finance, due to the perceived high risks and costs.Daniela Röttger's research demonstrates how MFIs can mitigate risks and costs of lending to smallholder farmers by using a combination of proven traditional microfinance mechanisms while adapting specific loan features and lending mechanisms to the particularities of smallholder agriculture. She systematically compares traditional microfinance risk management mechanisms with agricultural microfinance approaches and identifies successful strategies. For this purpose, eight MFIs providing agricultural finance to smallholder farmers in four countries in East and West Africa (Uganda, Kenya, Benin, Cameroon) were interviewed and their loan features and agricultural lending mechanism were analyzed.The study shows that MFIs can successfully serve smallholder farmers in rural areas. However, the extent of adaptations is reason enough not to commit to such an endeavor lightly. A strong commitment combined with sound in-house knowledge of agricultural value chains and the flexibility to adapt loan terms and lending procedures to the particularities of agriculture are needed to successfully develop and sustain agricultural microfinance.

List of Figures
List of Tables
List of Abbreviations
1 Introduction
2 Terminology and historical background of agricultural finance for smallholder farmers
3 Risks and costs of agricultural lending for smallholder farmers
4 Traditional microfinance risk and cost management approaches: do they work for smallholder farmers?
5 Interim conclusion
6 Overview of interviewed MFIs and their agricultural lending strategies
7 Risk mitigation through adapted loan products and lending procedures
8 Further strategies to reduce risks and transaction costs in agricultural lending to smallholder farmers
9 Conclusion

This book is a concrete example of how very good practical, field-based research can help practitioners and the sector in general to better understand some of their key challenges and to open new opportunities for development and innovation.
Daniela Röttger, M.A., won the 2013 University Meets Microfinance (UMM) award. She works as an independent consultant for microfinance and monitoring & evaluation, amongst others for the Competitive African Cotton Initiative (COMPACI).